When You Shouldn't Buy a House
There are times when you shouldn't buy a house, no matter what your real estate agent or mortgage lender might think. It can be a good decision to continue renting and then buy, depending on your financial situation.
So, how do you know you should wait?
If your financial situation is at all shaky, don't buy. You should really be thinking twice if you work in a job that is not secure. It's true that most of us can't count on job security, but if you are on unstable ground with your employer or if there is a chance that your employer could be filing for bankruptcy soon, you aren't in the market.
You should even think twice about buying if you are planning on changing jobs soon. If you have your resume on the street and head-hunters calling, you could be half way through the home buying process and suddenly have another job. Lenders don't like this much. In general, lenders tend to treat a new job within the previous six months as a credit risk factor.
If you are buying a house solely for an investment, you might also want to think twice. If you need your money out quickly, you could end up taking a considerable loss, particularly if you have paid for points and other expenses in buying the property. If you are speculating and properties take a substantial drop in value, you could be ruined financially. If you buy a property for investment purposes, you should have reasonable expectations, and generally it's much safer if you are in it for the long haul. This means that any money you put into an investment property should be able to stay there for at least 10 years. Otherwise, don't buy.
If you are looking for the house of your dreams, and will have to sink every cent into it in order to buy it, don't buy. If every spare nickel you have is going into your house, you are unlikely to have money left over for needed repairs and emergency savings for you and your family. Unfortunately, when families get into trouble, often the first thing to go is the house. If you are renting, you can downsize into a smaller apartment fairly easily. If you own your home, you can get caught, especially if the market is not good for selling. Think twice if you will be stretched to your limit financially.
Have you just emerged from bankruptcy? Again, this is not the right time to buy. Taking even a couple of years to re-establish a good payment history and a solid credit footing is time well spent. You will end up with much better interest rates on your loan when you do buy; keep in mind that rates and terms on sub prime mortgages run considerable higher than they do on a "conventional" mortgage for a person with a better credit rating.
While you are re-establishing your credit history, be sure to check your credit report on a regular basis; it should be at least once a year. Make sure that your good payment history is documented. Also be sure that any credit problems are removed in a timely fashion. You want to ensure that you can finance a mortgage later at a good rate.
Another reason to wait? In 2005, many experts are saying that the US housing market is overheated and due for a major correction. While you are making sure your financial house is in order, you might just find that the house of your dreams has become more affordable.